On Wednesday, Goldman Sachs (NYSE:GS) raised its outlook for National Grid (LON:NG:LN) (NYSE: NGG), upgrading the stock from Neutral to Buy and setting a new price target of GBP10.59, an increase from the previous GBP10.07. The upgrade comes after a reassessment of the company's financial standing and market position following recent developments.
The firm's analyst pointed out that despite the initial negative market response to National Grid's equity issuance and dividend re-basing, which saw the stock decline by 16% since May 23, 2023, these moves have effectively addressed concerns regarding funding and leverage. With these uncertainties now out of the way, National Grid's current valuation presents an attractive opportunity for investors, according to the analyst.
National Grid's shares are currently trading at a price-to-earnings (P/E) ratio of 9.3 times the estimated earnings for 2029, which represents a 32% discount to the company's 20-year average. Additionally, the stock is only at an 11% premium to its Regulated Capital Value (RCV), which is considered modest compared to historical standards.
The analyst also compared National Grid's valuation to that of its industry peers, noting that if the company's UK network assets were valued at a premium to RCV similar to other network transactions, the implied valuation for National Grid's US regulated assets would be approximately 35% below their forecasted 2025 rate base. This is particularly compelling when contrasted with Consolidated Edison (NYSE:ED), National Grid's closest US counterpart, which is trading at a significant premium.
Lastly, the analyst believes that the market has not fully recognized the potential for National Grid beyond 2030. The stock is currently trading at just a 4% premium to its expected 2030 regulated asset base, not fully accounting for the capital investment opportunities that may arise from the increasing demand for power and ongoing investments in power networks.
In other recent news, National Grid has been the subject of several analyst notes. Citi upgraded the company's stock to 'Buy', citing a favorable political and regulatory environment and significant improvements to its balance sheet. The firm also raised the price target for National Grid's shares to GBP 9.85, up from GBP 9.20.
Meanwhile, RBC Capital maintained an 'Outperform' rating on National Grid but lowered the price target to GBP11.25 from GBP12.50, considering adjustments in the company's investment strategy. Despite the revised price target, RBC Capital expressed confidence in the utility company's performance.
On a different note, CFRA maintained a 'Hold' rating on National Grid but increased the price target from $60.00 to $70.00. However, CFRA has adjusted its earnings per share estimates for fiscal years 2024 and 2025.
These are recent developments, reflecting analysts' varying perspectives on National Grid's financial outlook and investment plans. Investors are advised to consider these factors in their decision-making process.
InvestingPro Insights
Following Goldman Sachs' positive outlook on National Grid, real-time data from InvestingPro further supports the potential for investment in the company. National Grid's market capitalization stands at a robust $40.9 billion, and it currently trades at a P/E ratio of 13.97, which is considered low compared to industry standards. This aligns with the Goldman Sachs' view on the company's attractive valuation.
InvestingPro Tips indicate that National Grid has a strong track record of rewarding shareholders, having raised its dividend for 5 consecutive years and maintained dividend payments for 29 consecutive years. With a high dividend yield of 8.91% as of the last data point, it pays a significant dividend to shareholders. These factors may appeal to income-focused investors, especially when considering the company's stable profitability over the last twelve months.
For investors seeking more in-depth analysis, InvestingPro offers additional insights and tips on National Grid. There are 6 more InvestingPro Tips available, which can be accessed for a deeper dive into the company's financial health and future prospects. Interested readers can take advantage of an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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